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Marathon Petroleum (MPC) to Divest MPLX Assets, Reduce Debt

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Marathon Petroleum Corporation (MPC - Free Report) is looking to divest some assets of its subsidiary MPLX LP (MPLX - Free Report) in order to reduce debt burden, per Reuters. The asset sale is expected to generate $15 billion for Marathon Petroleum amid weak oil price environment and declining demand growth outlook.

It previously formed a special board committee that was expected to look for options for midstream operations. The company is now expected to divest the gathering and processing business of MPLX. The assets are located in the Southwest and Northeast regions of the United States. Precisely, the natural gas processing complexes operated by MPLX are spread across shale plays like Marcellus & Utica, and in Appalachia and Southwest regions.

The gathering and processing unit’s combined throughput capacity of gas gathering systems was recorded at 6.1 billion cubic feet per day (Bcf/d) in the fourth quarter. The assets’ combined processing capacity of natural gas was 8.7 Bcf/d during the quarter. Overall, its gathering and processing reported a loss of $375 million in 2019.

Notably, as of Dec 31, Marathon Petroleum had cash and cash equivalents of $1.5 billion and a total debt of $28.8 billion, with a debt-to-capitalization ratio of 40.6% compared with the industry average of 36%. The divestment will enable the company to reduce this huge debt load and strengthen balance sheet.

While the company is planning to sale assets from MPLX’s gathering and processing business, it is yet to decide on the subsidiary’s logistics and storage businesses. Notably, through the logistics and storage businesses, MPLX generated $2,752 million of operating income in 2019.

Price Performance

Marathon Petroleum has declined 46.7% in the past year compared with 49.8% collective fall of the stocks belonging to the industry.

 

Zacks Rank and Key Picks

Marathon Petroleum currently has a Zacks Rank #4 (Sell). Some better-ranked players in the energy space are Earthstone Energy, Inc. and Phillips 66 Partners LP , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earthstone Energy’s 2020 earnings per share are expected to gain 3.3% year over year.

Phillips 66 Partners’ first-quarter 2020 earnings per share are expected to gain 10% year over year.

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